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Pandora Receives Funding Deal

July 14, 2009

A new music royalty deal will secure Internet radio service Pandora millions of dollars in new funding, AFP reported.

The Oakland-based Pandora announced on Monday it was receiving a 35 million dollar investment from Greylock Partners, one of the oldest venture capital firms.

Greylock partner David Sze, who spearheaded the investment, said the team at Pandora is really passionate about music and they have worked hard to provide people a great online listening experience.

Sze noted that Pandora had reached a user base of 30 million registered users and was growing faster than ever.

“We are really excited about working with the company to help accelerate that growth,” he said.

Other sites that Sze has led Greylock investments in include the social networking service Facebook, news aggregation website Digg, and business-related online community LinkedIn.

The financial news website PEHub reported a 35-million-dollar figure for the deal, but representatives from both companies declined to comment on the exact amount.

Hearst Corp., Crosslink Capital, Walden Venture Capital, Labrador Ventures, King Street Capital, DBL Investors, and Selby Ventures are all Pandora investors.

Just days before the deal, Pandora founder Tim Westergren announced a long-term agreement over royalty rates for tunes played online.

Westergren wrote in a message to users at the company’s website: “For more than two years now I have been eagerly anticipating the day when I could finally write these words: the royalty crisis is over! Pandora is finally on safe ground with a long-term agreement for survivable royalty rates.”

Westergren said a “calamitous” Internet radio royalty ruling by U.S. regulators in 2007 could have landed a virtual deathblow to Pandora, had the deal not gone through.

The U.S. Copyright Royalty Board set a new fee structure for Web music broadcasts in 2007 that Westergren and other Internet radio proponents decried as ruinous for the business.

Westergren called the negotiated royalty rates “quite high” but manageable, and said Pandora would have to control costs by limiting users to 40 hours each of free online music listening a month.

Pandora announced that users would be given the option of paying a flat fee of 99 cents in any given month to continue listening past the 40-hour play limit.

Westergren said the company was simply asking its heaviest users to put a dollar in the tip jar in any month in which they listen over 40 hours.

While he hates the idea of limiting anyone’s listening, Westergren said the site has no choice but to react to the economic realities of the new rates. Pandora already offers paid premium upgrade accounts with added features.

“It is unfair that Internet radio services pay higher royalties than any other form of radio,” said Westergren.

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